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  • Subject Name : Economics

Macroeconomic and Microeconomic Theories

The corona virus which begun from the city of Wuhan, China has brought the entire developed economies to a standstill. With its massive spread each and every day it is becoming nearly unfeasible for the virus to get subdued and to stop its spread the entire world is practicing social distancing and the nations worldwide have implemented lockdown in their respective countries. Australia has also done a country lockdown to contain the virus but because of the lockdown the economic activities conducted have stopped because of which the country is facing a grave depression. Now in order that the economy doesn’t come to a complete pause the RBA (Reserve Bank of Australia) in the month of April this year has formed steps and regulations so as to recover the economy from becoming devastated (RBA, 2020). It is been anticipated that the Australian economy is on the move to slowly dive into recession phase for the 1st time since last 29 years.

With respect of the fiscal measures and policies by the RBA it comprises of three economic packages which in total constitute to 194$. In this package it consists of support to the households and business companies, subsidies and relief from taxes, investment incentives and some other largely focused measures have been taken in the major affected sectors. It also comprises in it support to the child care to 1 million families and for the schooling of their little ones. The package also comprises of support to establish efficiently the health care system so that the country is equipped to fight Covid-19. The fiscal steps taken by the government in this crisis were not helping much as the everyday wage workers and the poor families were getting much backing from the side of the government in these policies taken. It is because as many individuals had lost their respective occupations and they had funds left to even fulfil their requisites. In addition to this it the purchasing power among the public also got reduced which lead to a direct fall in the demand and consumption of the goods and services. Now with the fall in demand the equilibrium of the economy has become completely unstable due to weak unemployment. This had ultimately leaded to a fall in the GDP and growth rate of the economy.

In addition to this if micro financial and monetary measures handled by the RBA are also not pleasant. The RBA has implemented a decline in the policy rates and now the present cash rate is at 0.25%. The cut rates may act in the favour of the households which are having mortgages and it would incentive to share capitalists but still it won’t revive the economy. This can be understood by two concepts “demand shock” and “supply shock” (ABC News, 2020). Due to the global pandemic demand has reduced as currently people are following and implementing social distancing so the public is not stepping out from their homes in the merchandize stores to purchase commodities which will consequently decrease the demand. So now if a cut in the policy rates is not managing the demand shock then how will it handle to support the corresponding supply shock? Furthermore, people are also losing their jobs which are ultimately contracting the purchasing power of the public and now due to people getting sacked from their jobs the economy is dropping down miserably. The RBA itself has predicted and has the opinion that in these desperate times despite the steps that are being undertaken by the government of Australia it would follow to a humongous volume of decline in business fall outs and also in addition to this the arrears would thereby jump only.

In addition to this if the property market is taken into regard and consideration in the coming months it will eventually be coming face to face with large danger as the demand for comfortable and well furnished homes will likely to get decreased as the incidence of negate equity would increase if the rates of houses start to fall at such a rapid rate (Pursuit, 2020).

Due to the deadly corona virus the supply chain has also been hampered Many factories have been shut; demand has fallen for the goods. Now the companies are not able to manage with their overhead costs and expenses and due to which people are losing their jobs. So now the government has the view point that under the present circumstances of a deadly pandemic just one out of five families having sufficient money and funds to suffice and sustain through this disease over the coming period. To explain it the government took the concept of “pocket of vulnerabilities” (Reuters, 2020). The corona virus has grasped over the largest markets in Australia comprising of Sydney and Melbourne as the auction volumes and the clearance amounts have surged drastically in these two enormous markets. Since last year September the economy of Australia has been fighting with the roots of unemployment. Now the condition of unemployment has become much more deteriorated due to the corona virus as the unemployment rates have seen a surging rise of 6.2% due to the current economic crisis in the country (The Guardian, 2020). In addition to this due to the current scenario, it has created a negative impact on the labour market as well which is furthermore unlikely to improve as well in the coming period (The Hindu, 2020).

Speaking in language of economics- in a vicious cycle of weak employment it follows to a much weaker demand supplementing a much more weak supply which will automatically follow the weaker quality of life and degree of living which will eventually follow to a weaker economic growth in the economy (Jhinghan, 2016). In addition to this, the investments would be reduced to a greater extent which will further steer to much more reduced formation of occupations and jobs following a much more deteriorate skilled development among the workers and employees which will consequently hamper the productive ability and capacity that the economy comprises in it.

In addition to this the economic crisis which has risen due to virus will also have a severe impact on the savings as if the lockdown and the virus remains for a longer period of time then this will lead to a fall in the marginal propensity to consume. This in turn will result in increased unemployment in the economy that further will lead to rise in the preferences for savings as a cautious measure by the public. This will eventually impact on the investments done by the public and the economy will become unstable (VOX CPR Policy Portal, 2020).

Thus the policies and steps taken and which are being implemented by the RBA and the government in Australia won’t be of much help to boost the amount of growth in the Australian economy. The policies are of not assistance as still the needy and the poor are not receiving any advantages out from it which will eventually damage the GDP and the economic growth. Also with large economic package that the government announced it still seems to be quite in a dilemma and unsure of the trends and pace of the economy’s shocks which it is facing due to the present scenario of the deadly disease of corona virus and how the financial system and economy will revive once more from such an enormous depression.

References for Economic Policy of Australia Analysis

ABC News. (2020). RBA interest rate cuts won't save the economy from coronavirus, but there are policies that may. Retrieved from: https://www.abc.net.au/news/2020-03-04/interest-rate-cuts-wont-help-coronavirus-hit-firms-economies/12020208

Jhinghan, M. L. (2016). Micro economic theory. Delhi: Vrinda Publications.

Pursuit. (2020). The impact of Covid-19 on Australia’s housing market. Retrieved from: https://pursuit.unimelb.edu.au/articles/the-impact-of-covid-19-on-australia-s-housing-market

RBA. (2020). The covid-19 pandemic is causing significant strains in the global financial system. Retrieved from: https://www.rba.gov.au/publications/fsr/2020/apr/overview.html

Reuters. (2020). RBA says Australia banks able to weather pandemic shock, warns of some risk. Retrieved from: https://in.reuters.com/article/us-health-coronavirus-rba-finanacial/rba-says-australia-banks-able-to-weather-pandemic-shock-warns-of-some-risks-idINKCN21R069

The Guardian. (2020). Unemployment rate in Australia jumps to 6.2% due to covid-19 as 6000,000 jobs lost. Retrieved from: https://www.theguardian.com/business/2020/may/14/unemployment-rate-in-australia-jumps-to-62-due-to-covid-19-as-600000-jobs-lost

The Hindu. (2020). Australia rate at 5 year high. Retrieved from: https://www.thehindu.com/news/international/australia-unemployment-rate-at-5-year-high/article31579443.ece

VOX CPR Policy Portal. (2020). The impact of covid-19 on the equilibrium interest rate. Retrieved from: https://voxeu.org/article/impact-covid-19-crisis-equilibrium-interest-rate

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